1.Kings Taxi Service is currently operating a truck-hire service in Honiara. It is considering the replacement of its fleet of 6 x 1.5 tonne vehicles with a fleet of 5 x 2-tonne vehicles. Details of the respective vehicles are as follows:

For one 1.5 tonne vehicle

Remaining life: 2 years

Residual value:

Now: $30,000

In 3 years: $0

Annual net cash flows:$30,000

For one 2 tonne vehicle

Estimated life: 6 years

Cost : $150,000

Residual value: $0

Annual net cash flow: $50,000

Other information is as follows:

Net cash flow are to be regarded as received end of each year

The required rate of return is 10% per annum

Management is considering the following alternatives:

(a)Replace the 1.5 tonne vehicles now

(b)Replace the 1.5 tonne vehicles in 2 years time

Advice the management of Kings Taxi Service as to which alternative it should adopt and justify your analysis.